CardinalStone Research analysts have highlighted the potential for an increase in domestic consumption in 2024 driven by the prospect of higher wages.


In their latest economic outlook report titled ‘Sailing through troubled waters,’ the analysts point to a favorable environment for wage growth this year.

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Private sector entities may consider salary hikes due to rising inflation and the upcoming implementation of the Federal Government’s revised wage structure scheduled for April.

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The Report

“We see legroom for higher wages in 2024, with inflation forcing the private sector to push up salaries and the government set to initiate a new wage regime in April 2024.

“While higher wages could increase inflationary risk if production does not keep pace, we expect the impact of the high base effects on some inflation buckets to cap the scope for a strong YoY increase in the broad CPI reading.

“In addition, wages have historically had a weak correlation with inflation (0.28 over the last 12 years), possibly due to Nigeria’s inflation computation methodology.

“In any case, we are of the view that higher wages could support recovery in domestic consumption, with a positive passthrough to the economy.”

The report also notes a significant decline in domestic consumption following recent policy changes. In 2023, domestic consumption, which constitutes approximately 60% of the overall economy, experienced a cumulative contraction of 10.6%. This decline contrasts sharply with the relatively milder contractions of 2% and 5.3% observed during the COVID-19 pandemic and the 2016 recession, respectively.

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Despite government efforts to alleviate the impacts on the cost and standard of living of the populace, the report highlights that the country’s poverty level worsened in 2023. Sluggish economic growth became more entrenched due to flat investments and low unemployment, increasing the burden of caring for dependents.

“Inflation is anticipated to reach its peak in the first quarter of 2024, settling at approximately 29.5% by March. From the second quarter onward, the combination of base effects and the diminishing impact of significant gasoline price increases is expected to drive disinflation, resulting in an average inflation rate of 22.0% for 2024, compared to the projected 24.5% for 2023.

Furthermore, the consistent hawkish stance of the Central Bank of Nigeria (CBN) and reduced deficit financing for the government, stemming from expected gains related to subsidy removal, may contribute to a positive impact on inflation by lowering the broad money supply.

Despite the anticipated moderation, the projected inflation remains well above the long-run average of 14.0%, reflecting currency pressures and other contributing factors.

The CardinalStone report underscores the impact of recent economic reforms initiated by the current administration, particularly the removal of subsidies and efforts to streamline exchange rates, as significant factors contributing to elevated inflation levels in the country.

The Consumer Price Index, serving as an inflation gauge in Africa’s largest economy, has surged to its highest point in 18 years, primarily attributed to these Federal Government reforms, including the removal of petrol subsidies and the devaluation of the naira.

In response to these economic developments, the Nigerian Government announced a revised minimum wage set to take effect from April 1, 2024, marking the conclusion of the existing minimum wage of N30,000 by March 2024.

Idris Mohammed, the Minister of Information and National Orientation, revealed that a new wage structure would be implemented on April 1, 2024, with ongoing discussions between the government and labor representatives to establish a committee for formulating this new compensation framework.

It is noteworthy that the government has outlined plans to allocate an average of N5.8 trillion over the next three years towards personnel expenses.

President Bola Tinubu has expressed the Federal Government’s unwavering commitment to implementing a new national living wage for workers in 2024, emphasizing its economic and moral imperative in his New Year message.

However, it is essential to acknowledge that the National Assembly reduced allocations designated for minimum wage-related expenditures in the 2024 budget, sparking concerns about potential repercussions on workers and their economic well-being, especially in the context of ongoing economic challenges.”